NATURE AND THE ECONOMY – HOW DO THEY GO TOGETHER?

Viewed in economic terms, nature represents a stock of capital from which ecosystem services are provided and that, like human or physi-cal capital, needs to be maintained. Yet the predominant economic system sees market prices as the most important expression of value, thereby overlooking the public goods and services that nature provides free of charge and outside of markets. The state attempts to counter this tendency by laying down rules and through its own investment, but it is questionable whether this can do enough to prevent the overuse of nature and its services and hence the dissi-pation of natural capital.

Nature is a form of capital, like physical capital and human capital. It is necessary to care for this capital and build it up, or at least prevent its depletion and destruction. From it flow »dividends« in the form of beneficial ecosystem services – a »healthy« capital stock is the basis of human well-being and economic development. This means that preserving natural capital is not just about nature and/or biodiversity – i. e. the diversity of species, ecosystems and genetic resources; it is mainly about preserving nature as the basis of human livelihoods and an important factor in prosperity, quality of life and economic devel-opment.

Important causes for the lack of consideration given to the services of nature arise from the fact that biodiversity and ecosystem services are often »public goods« and that adverse impacts often arise only in the long term – at which point, however, they are frequently difficult or impossible to reverse. Maintaining and restoring ecosystems and their services usually benefits the whole of society or at least many people simultaneously. For example, structural elements on agricul-tural land have positive impacts on the landscape and its recreational potential; they protect against soil erosion and provide habitat for pollinators and other beneficial organisms. However, it may take some time for the benefits of conserving them or creating new struc-tural elements to be felt – in part because the erosion processes that they prevent are insidious and long-term. By contrast, the costs to the individual farm in the form of reduced yields or expenditure on adap-tation of the machinery fleet have to be borne in the short term. Con-versely it is true that overuse of nature – for example through inten-sive land use, which may be driven by ecologically questionable financial incentives (such as incentives to plough up grassland in or-der to grow maize as an energy crop) – generates high individual prof-its but may be detrimental to many people or to future generations (pollution of lakes and rivers, species impoverishment). The people affected by this are usually unable to assert any individual rights.

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They must bear the negative external effects of the overuse of natu-ral resources, unless policymakers succeed in reducing these effects to a socially acceptable level that is compatible with sustainability objectives. Essentially it becomes clear, that the economic compass by which we have navigated in the past is inadequate: short-term perspectives dominate over long-term thinking, individual interests over communal ones, and quantitative market data frequently take precedence over the significance of vital public environmental goods.

This is not necessarily true only of private-sector stakeholders; in some cases it also applies to policy-making.

Even in public decision-making it is difficult to balance individual inter-ests and economic benefits on which a monetary value can be put against societal concerns of biodiversity conservation and long-term sustainable management. Typically, public decisions and investment opportunities are evaluated by costs, yields, jobs and income effects, while losses of natural capital and ecosystem services are difficult to be expressed in comparable units. This is a crucial disadvantage. Be-cause the positive social and economic effects of conserving nature are not recognised or not identified adequately, it is quickly con cluded that nature conservation is a cost burden and hence an obstacle to investment. Economic development and conservation of nature and the environment appear to be opposites and are often presented as such in public debate. In addition, politicians and policymakers often set short-term priorities in which conservation of nature plays a rela-tively minor part.

Figure 3 exemplarily uses the loss of floodplains to illustrate the re-sults of thinking primarily in narrow economic terms without consid-ering the multifaceted services of nature. If the decision on whether floodplains should be diked and eventually approved for building on is based only on the impacts on which a direct economic value can be put, then the construction and investment costs are the only disad-vantages (costs) to be set against the addisad-vantages (benefits) of the additional dwellings, transport infrastructure, jobs and tax revenue.

As a result, the floodplains are diked and there is a steady increase in the area of the former floodplains that is used for settlement and transport purposes, as has been happening for decades in real life. By contrast, a broader macro-economic TEEB perspective would prob-ably have come to a different conclusion at an earlier stage, because consideration would have been given to factors such as the loss of soils, the increased greenhouse gas emissions as a result of draining the land, the increased flood risk, the reduced mitigation of the nutri-ent load in water bodies and the loss of recreational landscape.

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FIGURE 3 Distorted consideration of social benefits and costs in profitability assessments, using diking and development of floodplains as an example.

(Source: adapted from ifuplan in Natural Capital Germany, 2012) Decisions »good« for society include all relevant aspects in the

calcu-lation in line with their social weighting. They must also consider and measure – including in terms of extent and significance – the impacts on those services of nature that are not currently quantified or trad-able on markets but that nevertheless make significant contributions to human well-being. Factors must also be included that have only long-term effects. Monetary valuations of natural capital and ecosys-tem services can be useful in this context, since they enable very dif-ferent categories of benefits and costs (such as investment costs, bene fits from climate change mitigation measures, water retention, etc.) to be considered in one »currency« and hence in principle on an equal footing and in comparable terms. In this context it is clear that monetary values only ever represent one aspect of the many values of nature (see Infobox 1).

INFOBOX 1

Critique of the economic valuation of nature

The economic valuation of nature and in particular the monetisation of its services often provoke criticism and opposition. Many points of criticism are entirely justified; for example, critics are right to draw attention to the limits of economic valuation methods and to the focus on willingness to pay as a yardstick of value.

But they often overlook the fact that in many situations in which deci-sion-makers refrain from explicit economic valuation, implicit (econom-ic) valuations are performed – frequently to the detriment of nature.

Intensive land use and other interventions are frequently justified by reference to economic growth, jobs and prosperity. In a decision- making

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situation of this sort, a powerful argument FOR conserving nature can be made by pointing out that we – as individuals and as a society – suf-fer a macro-economic loss if we »deselect« nature and the diversity of its ecosystem services, and that we are weighing things up incorrectly if we ignore the benefits of nature conservation and consider only its costs.

Valuation is after all only a means to an end. If the end is to provide a full and complete basis for decision-making, a comprehensive descrip-tion of the value of nature and its manifold ecosystem services for human well-being and sustainable economic activity, then this means should be used – supplementing other methods that have long been in use.

Furthermore, »Natural Capital Germany – TEEB DE« is concerned less with monetary valuation than with raising awareness of the ecosystem services of nature and with demonstrating what the advantages are of preserving the services that ecosystems provide (in whatever units this is meaningfully possible), who the beneficiaries are, how diverse the benefits are, and also who must ensure that ecosystem services continue to be provided and what costs are involved. Monetisation is only one method of making the diverse benefits of preserving nature and its ecosystem services visible – and a method at that that is only usable in very limited circumstances.

Finally, it should be made clear that methods of economic valuation do not by any means boil down semi-automatically to markets. The aim of many valuation studies is rather to highlight where markets fail and thus support arguments for state action. What consequential social costs arise from the destruction of nature and the loss of ecosystem services, and who bears them? What benefits does conservation of nature and the environment confer on society, and for whom? Why do prices not tell the ecological truth? How can natural capital be safe-guarded in ways that are cost-effective for society?

Achieving the sustainable use of ecosystem services can be based both on statutory regulation and public planning processes and on instru-ments that use the market mechanism to create incentives for private provision of ecosystem services and cut costs. Whether a market inter-vention instrument should actually be brought into play is a political question, the answer to which can be facilitated by comparing it with other instruments and analysing instrument design.

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FIGURE 4 Restoration of a former open pit mine: Birch forest at Neue Harth near the town of Zwenkau.

(Photograph: André Künzelmann)

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FIGURE 5 Synergies and trade-offs in the provision of ecosystem services: largely natural ecosystems, intensively used farmland, diverse cultural landscape.

(Source: by the authors, based on Foley et al., 2005, p. 573)

When considering the ecosystem services of nature, it is important not to maximise selected individual services but to view the bal-anced set of ecosystem services as a whole. This can be seen particu-larly clearly in the agricultural use of landscapes (see Figure 5): near-natural ecosystems usually perform less well in terms of providing the population with food or resources (left-hand picture). Intensive farming, by contrast, results in significant productivity increases that can be used in particular to supply markets (middle picture).

However, these productivity increases are often at the expense of other socially relevant ecosystem services and may even result in their loss. While greater consideration of the non-provisioning ser-vices of farming methods that emphasise nature conservation may result in reduced yields, it also results in higher levels of other eco-system services (right-hand picture). It is important that these ef-fects are not just depicted theoretically but are measured quantita-tively and empirically.

Considering the entire range of ecosystem services and using nature sustainably yields contributions to many societal objectives simul-taneously: low-cost climate change mitigation and adaptation mea-sures, fewer pesticide residues in food, recreation, utilisation of sustain-able resources, conservation of fertile soils, water pollution control, agreeable living and working environments and social equity. Fur-thermore, it is usually more cost-effective to avoid environmental damage in the first place than to have to bear the resulting costs to society.

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1.3 THE OBJECTIVE OF TEEB DE AND